FIIs lap up $3.96 bn of government of India bonds

Foreign financial institutions (FIIs) subscribed to more than the $3.96 billion (approximately Rs23,649 crore) worth of government of India bonds at the biggest sale of government securities so far this year.

The Securities and Exchange Board of India (SEBI), which conducted the auction at the two major national stock exchanges in India, the National Stock Exchange and the Bombay Stock Exchange, today, received bids for a total of over $4.3 billion against the offer of bonds worth $3.96 billion.

The auction was held for allocation of FII investment limits in government debt securities worth Rs23,661 crore ($3,957 million). SEBI received 51 bids in the auction, of which 50 were successful.

The robust response from FIIs come after these foreign  investors pulled out about $3 billion (Rs17,000 crore) from the Indian market, including Rs11,196 crore ($1.87 billion) in debt and over Rs6,000 crore in socks.

Rupee bonds would be of value to FIIs at a time when the rupee is at its lowest. Once the rupee gains some strength, which could be a distant possibility, GoI bonds would bring in additional arbitrages for the investors.

This could explain the robust response to the auction at a time when the rupee has been steadily depreciating over the past few months.

FIIs had, in June, also bought Rs 42,000 crore worth of government bonds at the auction sale of FII investment limits.

At the same time, FIIs had, in June, withdrawn a record Rs44,162 crore ($7.5 billion) from the debt and equities markets.

FIIs had been aggressive buyers of rupee bonds – both government and corporate - in the past few months on account of higher yields.

The government has recently hiked investment limits for FIIs in government debt to $30 billion, from $25 billion previously.

Meanwhile, the rupee, which slumped to a lifetime low of 61.21 in intra-day trading on 8 July, is still ruling around the 60-a-dolar level.